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Legal Memorandum: Third Party Beneficiary Right

Issue: Can a third-party beneficiary provision in an agreement be enforced if the agreement is itself unenforceable?

Area of Law: Business Organizations & Contracts
Keywords: Third-party beneficiary; Material part of the parties
Jurisdiction: Virgin Islands
Cited Cases: 489 So. 2d 54; 485 N.E.2d 208; 583 A.2d 1378; 438 So. 2d 102; 115 So. 94; 584 A.2d 531
Cited Statutes: Restatement (Second) of Contracts § 311
Date: 04/01/2006

“[A] third-party beneficiary’s right to enforce a contract cannot ‘rise higher than the rights of the contracting parties through whom he claims.'”  Md. Cas. Co. v. Dep’t of Gen. Servs., 489 So. 2d 54 (Fla. Dist. Ct. App. 1986) (quoting Crabtree v. Aetna Cas. & Sur. Co., 438 So. 2d 102, 105 (Fla. Dist. Ct. App. 1983)).  Third-party beneficiaries must take their contracts as they find them—the good with the bad.  The rights of a third-party beneficiary are inflicted “with all of the infirmities of the agreement as between the parties thereto.”  Meyerson v. New Idea Hosiery Co., 115 So. 94 (1927).  See 13 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 37:23 (2000).  Thus, “to the same extent that third parties can take advantage of beneficial and favorable terms of the contract, they are also bound by any inadequacies of the contract.”  Id. § 37:23 at 149-50.

In Rhone Poulenc, the Third Circuit Court of Appeals stated the test for determining third-party beneficiary status under Delaware law as follows:

[T]o qualify as a third party beneficiary of a contract, (a) the contracting parties must have intended that the third party beneficiary benefit from the contract, (b) the benefit must have been intended as a gift or in satisfaction of a pre-existing obligation to that person, and (c) the intent to benefit the third party must be a material part of the parties’ purpose […]

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